Self-Driving Cars: Why 2018 Will Be The Year The Rubber Hits The Road

The high hopes for self-driving cars that Tesla (TSLA), Waymo-owner Alphabet (GOOGL), General Motors (GM) and others have offered over the years should come into clearer focus in 2018, when the real-world details of actually ushering in a new transportation revolution are worked out.

XFor example, some of the finer points of self-driving regulations, costs reductions and insurance are expected to emerge in the coming year.

Self-Driving Rules Of The Road

California has had self-driving regulations for a few years now, but the cars aren't really driverless. They have "safety" or "backup" drivers in the front seat, ready to take over the controls if needed. And they are restricted to testing scenarios, not public use.

But in October, the state's Department of Motor Vehicles proposed updates to its regulations allowing companies to deploy autonomous vehicles on public roads without human drivers, even doing away with backup drivers. The rules could take effect by June.

For the auto industry, a patchwork of self-driving regulations in 21 states is a hurdle to getting vehicles to consumers. They have pushed therefore for federal legislation, with the first national law for self-driving cars now in the works.

But since California is the most populous state with the most cars in the country, it has often set the standard on regulations.

Cost, Technology Hurdles

In 2018, automakers should put in place the building blocks for bringing robocars to the masses.

"It will be a pivotal 'test and learn' year to prepare for commitments" they have made, Jessica Caldwell, Edmunds executive director of industry analysis, said on a media call Dec. 18.

GM plans to slash lidar (or "laser radar") costs to $300 from $20,000 per car, helped by its acquisition of lidar tech firm Strobe. GM hasn't attached a time frame to that goal, but 2018 will be a crucial year for making progress if the company is to reach another goal of debuting self-driving cars for ride-sharing services in 2019.

Meanwhile, car battery packs are also expensive and all those sensors and processors in self-driving systems are a big battery drain. GM seeks to reduce battery costs for its electric Bolt by almost a third in just three years.

For its self-driving ride-sharing service, GM is intent on lowering the cost-per-mile to under $1 by 2025, down from the $2-$3 a mile that it says Uber and Lyft customers pay today.

It sees that as a crucial level for profitable scale, with the potential to unlock a $750 billion ride-share market, more than 150 times the size of the current market.

Expanded Testing, Tesla's Deadline

Waymo's self-driving vehicles are already being tested on public roads in the Phoenix metro area without anyone in the driver's seat, and the Alphabet unit plans to start a ride-hailing service with its fleet of driverless Fiat Chrysler (FCAU) Pacifica minivans soon, though it hasn't offered a firm timeline.

GM will expand testing of its autonomous Chevrolet Bolts to New York City early in 2018, paving the path for its promised robotaxi service. Also in the coming year, Ford (F) will begin testing new self-driving vehicle technology in an unnamed city, while moving its autonomous strategy team from Dearborn, Mich., to nearby Detroit to explore the needs of urban mobility. For its part, Ford is targeting "high volume" fully autonomous cars for ride-sharing services in 2021.

The types of cities where testing expands will be critical to developing technologies that allow autonomous cars to operate safely in rough weather, congestion, and different levels of lighting. And that's just the more routine stuff.

The cars also must detect bicyclists or pedestrians who share urban roads, as well as determine how to proceed when people break traffic laws, when traffic lights don't work, or when unexpected construction activity makes mapping software unreliable.

Meanwhile, Tesla largely has eschewed self-driving alliances and acquisitions in favor of developing its Autopilot feature, which has some autonomous capabilities.

Although the company has amassed a vast trove of data from Autopilot usage that could improve performance, Tesla is now seen at risk of falling behind other carmakers on rolling out full autonomy and will likely miss a promised cross-country trip by a fully self-driving Tesla by the end of 2017.

Self-Driving Insurance

Who takes the blame if a driverless vehicle crashes? The driver or the carmaker?

When Allstate (ALL) CEO Tom Wilson was asked that question in an interview on Marketplace last month, he replied, "In that case, it would be the manufacturer of the car."

Liability is likely to loom even larger as an issue in 2018, roiling consumers, automakers and technology companies, not to mention insurers such as Berkshire Hathaway (BRKB) subsidiary Geico.

That issue surfaced in California in 2017, with safety advocates seeking changes to proposed regulations on behalf of consumers. And an insurance startup said Dec. 19 that it will partner with Waymo to insure its riders for trip-related medical expenses and property damage.

Eventually, autonomous cars are almost certain to make roads safer. This technology is one reason why the auto insurance sector will shrink by 71%, or roughly $137 billion, by 2050, with a lengthy and "chaotic" transition likely as the companies develop new business models, consulting firm KPMG said in June.

Berkshire Hathaway CEO Warren Buffett agrees self-driving cars will be negative for auto insurers in the long term. If those vehicles prove to be safer than traditional cars, insurance costs will plummet, hurting Berkshire's Geico unit, he has warned.

Autonomous Trucks

Daimler, the world's largest truck maker, intends to refine its "platooning strategy" for self-driving, connected trucks in 2018. The German giant already is testing its Freightliner Inspiration trucks for autonomous driving on public highways in Nevada, but has cautioned that "much more development is needed," according to Trucks.com.

The second half of 2018 will see a new entrant in this segment, as Deutsche Post DHL starts testing self-driving trucks, likely in Germany.

Autonomous trucks could make delivery and logistics services more efficient, as well as address the persistent shortage of drivers. Waymo and Volvo, as well as Uber through its Otto acquisition, are also pursuing self-driving trucks.

Tesla will also loom over trucks, as its Semi has seen a rush of preorders from shipping giants like J.B. Hunt (JBHT) and UPS (UPS) as well as companies with extensive logistical operations like Wal-Mart (WMT).

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